*

Rubio says Trump sees status quo at Panama Canal as

unacceptable

Sovereignty over the canal is not up for discussion, Mulino says

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U.S. believes China's influence violates neutrality treaty

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Rubio on Latin America tour in first overseas trip as top

U.S.

diplomat

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(Adds Trump comments in paragraphs 7-9)

By Simon Lewis and Elida Moreno

PANAMA CITY, Feb 2 (Reuters) - U.S. Secretary of State

Marco Rubio on Sunday warned Panama's President Jose Raul Mulino

that Washington will "take measures necessary" if Panama does

not immediately take steps to end what President Donald Trump

sees as China's influence and control over the Panama Canal.

Mulino, after the talks with the top U.S. diplomat in Panama

City, signaled he would review agreements involving China and

Chinese businesses, and announced further cooperation with the

U.S. on migration, but reiterated that his country's sovereignty

over the world's second busiest waterway is not up for

discussion.

Rubio delivered a message from Trump that China's presence -

through a Hong Kong-based company operating two ports near the

canal's entrances - was a threat to the waterway and a violation

of the U.S.-Panama treaty, U.S. State Department spokesperson

Tammy Bruce said in a statement.

"Secretary Rubio made clear that this status quo is

unacceptable and that absent immediate changes, it would

require the United States to take measures necessary to protect

its rights under the Treaty," Bruce said.

Rubio did not spell out exactly what steps Panama must take

or what U.S. retaliation would look like.

Upon returning to office, Trump threatened to take control

of the Panama Canal, built by the United States in the early

20th century and handed over to Panama in 1999, claiming the

canal is being operated by Beijing.

He has refused to rule out use of military force over

Panama, drawing criticism from Washington's Latin American

friends and foes alike. On Sunday, Trump said that he did not

think troops would be necessary, but that Panama had violated

the agreement and the United States would take back the canal.

"China's running the Panama Canal. That was not given to

China, that was given to Panama - foolishly - but they violated

the agreement, and we're going to take it back, or something

very powerful is going to happen," Trump told reporters.

"I don't think troops will be necessary in Panama," he

added.

Rubio, a longtime China hawk during his Senate career, said

last week on Sirius XM's The Megyn Kelly Show that China could

use the ports to shut down the canal, a vital route for U.S.

shipping, in the event of a conflict between Beijing and

Washington.

Mulino said his meeting with Rubio was respectful and

cordial. He showed willingness to review some Chinese businesses

in Panama, including a key 25-year concession to Hong Kong-based

CK Hutchison Holdings ( CKHUF ), renewed in 2021 for the

operation of ports at both entrances of the canal, pending the

results of an audit.

The contract has been targeted by U.S. lawmakers and the

government as an example of China's expansion in Panama, which

they claim goes against a neutrality treaty signed by both

countries in 1977.

Panama's government and some experts reject that assertion,

mainly because the ports are not part of the canal's operations.

The canal is operated by the Panama Canal Authority, an

autonomous agency overseen by the Panamanian government.

A broad agreement between Panama and China to contribute to

China's Belt and Road initiative, under which the Asian country

expanded investment in Panama during previous administrations,

will not be renewed, Mulino said.

"We'll study the possibility of terminating it early," he

added.

"I do not feel that there is any real threat at this

time against the (neutrality) treaty, its validity, and much

less the use of military force to make the treaty," Mulino said,

adding that it will be important to have face-to-face talks with

Trump.

FIRST TOUR

Rubio later visited the Miraflores Locks through which ships

pass between the Pacific and the canal. Canal officials briefed

Rubio as a Panamanian-flagged LPG carrier entered a lock from

the canal to descend to the Pacific.

China has said it plays no part in operating the canal and

that it respects Panama's sovereignty and independence over the

waterway.

"Never ever has China interfered," Chinese Foreign Ministry

spokesperson Mao Ning said when asked about the U.S. claims last

month, adding that China recognizes the canal as "a permanently

neutral international waterway."

Rubio is touring Central America and the Caribbean on his

first foray in the post as he seeks to refocus U.S. diplomacy on

the Western Hemisphere - in part to recruit help in stemming

migration toward the U.S. southern border.

The visit also reflects a U.S. desire to counter China's

growing economic and political influence in Latin America.

Mulino also announced that a memorandum of understanding

signed in July with the U.S. Department of Homeland Security

could be expanded so Venezuelans, Colombians and Ecuadoreans can

be returned from the perilous Darien Gap at U.S. cost, through

an airstrip in Panama.

The Darien Gap connects Colombia with the Central American

nation of Panama and increasing numbers of migrants were making

the journey north to reach the United States.

Rubio has ordered the State Department to put migration

issues at the center of its diplomacy with countries in the

region. Officials have said Rubio will use the trip to smooth

the acceptance of U.S. deportation flights to the region.